Kiwi tanks after a dovish RBNZ points to a rate cut

The kiwi tanked after the RBNZ made its interest rates decision. The bank left rates unchanged at the 1.75% level, where they have been since 2016. This was expected. What was not expected was the bank’s announcement that it could be forced to lower rates this year. This decision came after other central bankers have turned a bit dovish. Just last week, the Fed announced that it won’t hike this year. In the week before, the ECB announced that it won’t hike until December this year. In the statement, the RBNZ said that:

The balance of risks to this outlook has shifted to the downside. The risk of a more pronounced global downturn has increased and low business sentiment continues to weigh on domestic spending. On the upside, inflation could rise faster if firms pass on cost increases to prices to a greater extent. We will keep the OCR at an expansionary level for a considerable period to contribute to maximizing sustainable employment, and maintaining low and stable inflation.

The price of crude oil edged up slightly after the API released the inventory numbers for the past week. The data showed that inventories rose by 1.9 million barrels. This was higher than last week’s drawdown of more than 2.1 million barrels. Today, the official government numbers will be released. They are expected to show that there was a drawdown of more than 1.2 million barrels. The data released last week showed that the drawdown was more than 9 million barrels, which led the price of oil to rise.

Focus will remain on Brexit as MPs start debating various options in Parliament in a process that could extend to the coming week. There are a few options. The customs union option allows Britain to negotiate a new customs union with the EU after Brexit. The common market 2.0 allows the UK to remain in the single market by joining the European Free Trade Association (EFTA) and staying in the European Economic Area. Another option is to join the EFTA and EEA but making them enforceable by UK courts. Theresa May’s deal could also be accepted but without a backstop arrangement. Finally, there is the option of another referendum or abandoning article 50 altogether.

EUR/USD

The EUR/USD slid in overnight trading. The pair is now trading at 1.1255, which is below the 25-day and 50-day moving average while the Relative Strength Index (RSI) has declined to the oversold level of 30. This price is slightly below the 23.6% Fibonacci Retracement level of 1.1268. After crossing this support, the pair could retest the previous lows of 1.1175.

GBP/USD

Sterling was little moved against the USD as MPs start deliberating on the next action on Brexit. The pair is trading at 1.3185, which is within yesterday’s range. On the hourly chart, the pair is above the important yellow support shown below. It is also close to the 23.6% Fibonacci Retracement level of 1.3186. There is a likelihood that the pair will continue moving lower to test the important support of 1.3100.

NZD/USD

The NZD/USD pair tanked after the decision by RBNZ. It declined from a high of 0.6190 to a low of 0.6975. This is the lowest level since the first week of March. On the hourly chart, the current price is below the 61.8% Fibonacci Retracement level of 0.6817. It is also sharply along the lower line of the Bollinger Bands. The pair could make a slight recovery today, but the downward trend could prevail.